global imbalance between high investment
and low consumer spending, according to
an analysis issued in December by The Conference Board, the global research and
business membership organization.
The steady rise of global commodity
prices since 2002 has been led by spiraling
oil prices. There have been a number of
additional factors motivating these increases:
exceptionally low interest and inflation rates,
a surge in emerging market demand led
by heavy investment in China, the acceleration of global manufacturing activity in
2004, and a shortfall in natural resource
investment for almost 20 years.
“The relationship between U.S. crude
oil stocks and oil prices has become unhinged
during the past year, probably due to new
demand/supply factors heavily influenced
by China,” says Gail D. Fosler, executive
vice president and chief economist of The
Conference Board. Her analysis appears in
“Straight Talk,” a newsletter designed
exclusively for members of The Conference
Board’s global business network.
These imbalances have generated
major crises in the past, both in the U.S.
and abroad, although there are important
offsets – particularly by deep discounting
in other prices – today. In spite of recent
dips in energy prices and holiday promotions, consumers across the U.S. will be
hard hit in the short term.
Says Fosler: “The recent energy shock
is reminiscent of the 1970s. Rising gasoline prices have taken the energy share of
consumer spending from about 4 percent
in 2001 to 6. 5 percent this September –
the highest level in more than 20 years.”
While oil prices hit new highs during
the recent hurricane crises, the recent
surge was not sustainable and oil prices
have already declined again. But current oil
prices are still well above the level consistent with their long-term fundamentals. In
the coming months, oil prices should continue to fall toward levels more consistent
with long-term economic fundamentals.
“Still, even if oil prices fall to $40 a
barrel, natural gas prices are likely to
remain at about $7 per MMBtu, which is
still above the prevailing price of the last
10 years,” says Fosler.
For more information, visit www.con
IRS Seeks Applications for
Clean Energy Bonds
In December, the U.S. Internal Revenue
Service (IRS) announced a request for
applications for renewable energy projects
to be financed with up to $800 million in
tax-credit bonds. Projects that generate
clean power from wind, biomass, geothermal, solar energy, hydropower, small irrigation power facilities, landfill gas, trash
combustion, or certain refined coal production facilities may qualify for these
loans. This Clean Renewable Energy Bond
program was established by the Energy
Policy Act of 2005.
Only cooperative electric companies
or government bodies are eligible to apply
for financing. However, government bodies could be interpreted to include public
colleges and universities, schools or other
state, local or municipal agencies.
Applications are due by April 26, 2006.
For additional information on this program
see the IRS solicitation ( www.irs.gov/pub/
irs-drop/n-05-98.pdf) or the American
Public Power Association press release
ndProgram12-13-05.pdf). Background on
tax-credit bonds is available in a Congressional Budget Office report, which is
available at www.cbo.gov/showdoc.cfm
Chocolate Plant Opts
The Daily Review in Hayward, Calif.,
reported Jan. 1 that the Ghirardelli Chocolate
Co. plant in San Leandro, Calif., now generates its own electricity through cogeneration, which emits heat at 900 degrees F.
The plant – which refines 150,000
pounds of chocolate into candies every
day – uses the hot water by recirculating it
around the tanks to keep the chocolate
from freezing up. The heat also is used in a
newly installed absorption chiller, which
converts cold water into cool air. The chiller
keeps the building’s 400 workers comfortable and the boxed chocolate in storage
from melting. It saves 2 million k Wh of
electricity and $250,000 per year in energy
The initial $2 million investment has
paid off, with total savings topping $1
million a year. Ghirardelli is one of several
companies Pacific Gas & Electric Co.
(PG&E) has worked with on long-term savings through technology upgrades. PG&E
reports that paybacks are usually within a
year or a year-and-a-half.
Ghiradelli also has opted for reuseable plastic shipping boxes to replace
cardboard boxes, which were costing the
company more than $500,000 per year.
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